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Priya Nair

Mumbai, July 26 The benign interest rates in the government securities market ensured that other income made up for the lower or flat interest income for most of the banks in the April-June 2009 period.

This is the trend seen among most banks that have declared results, so far, and could be so for the ones that are yet to declare results, say banking analysts.

“Interest rates have been benevolent in the first quarter. Also, many banks had accumulated higher coupon securities last year and sold them this year,” said a banking analyst.

In the case of banks such as HDFC Bank and Union Bank, the growth in net interest income was flat at 8 per cent and 1.5 per cent.

“In the first two quarters of this fiscal, generally with an active treasury, most banks will see good trading profits. Given the benign interest rate scenario, all that was needed for the banks was to churn the portfolio. But going ahead, the growth in trading profits may not be exponential, as around the first half of October yields will harden,” an analyst added.

According to Mr Darpin Shah, Senior Research Analyst, Dolat Capital Market, in the June quarter last fiscal, bond yields were high as the Reserve Bank of India was curtailing inflation and sucking out liquidity.

Therefore, there was less opportunity for banks to make profits from trading in their ‘available for sale’ portfolio.

In comparison, this fiscal, liquidity is ample and banks have invested huge amounts in G-Secs, which enabled them to make profits. “Banks have been making treasury profits since December 2008, as the RBI started cutting policy rates from October 2008,” he said.

Some banks also use this surplus to make provisions for any future depreciation in their investment portfolios.

Mr Rajat Monga, Chief Financial Officer, YES Bank, said, “We believe it is prudent to use this counter-cyclical income to build assets for provisions. Many banks do so and it does not necessarily go into the bottomline.”

More Stories on : Banking | Financial Performance | Debt Market

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